TORONTO, Dec 7 (Reuters) - When Lululemon Athletica Inc
opened its first U.S. shop in 2003, its form-fitting
yoga pants, free classes and Pacific Northwest vibe were a
revelation to its new American customers. They had never seen
another retailer like it.

But time has caught up with the Vancouver-based retailer.
Lululemon, closely watched by investors because of its meteoric
rise, now faces a cluster of competitors whose stores and
products bear a striking resemblance to its own.

Montreal-based Lolë, Gap Inc's Athleta and others
are expanding aggressively in the United States. They could
threaten Lulu's stellar growth and robust brand, especially by
competing on price.

Conversely, Lulu could reap more growth from the expanding
market for premium fitness wear, building on its 10 years of
dominance in North America and its aggressive push into European
and Asian markets.

Lululemon shareholders have had a very good run so far. The
stock is up more than seven-fold since its 2007 debut and
fitness-minded women have developed a fierce loyalty to the
brand. Lululemon says it offers superior quality and if sales
and earnings growth are any guide, customers agree.

According to research firm Retail Sails, Lulu is one of the
most productive U.S. retail chains, lagging only Apple Inc
and Tiffany & Co in sales per square foot.

The gravy train may not last forever. On Thursday, Lulu
forecast a sharp slowdown in sales at its established stores in
the crucial fourth quarter. The company said November got off to
a slow start because of "consumer distractions that negatively
impacted many retailers" and a glitch with its promotional
emails through the Thanksgiving weekend.

The copycats can, however, be viewed as a positive
development for Lulu, suggesting the niche it defined is not a
passing fad. Chic, feminine apparel specifically designed for
yoga and other fitness activities has entered the fashion
mainstream.

In that respect, the rise of yoga wear is not unlike the
ascendance of blue jeans in the 1970s, said Bernard Mariette,
chief executive of Coalision Inc, the closely held Montreal
company behind the Lolë concept.

"I really believe that, especially for women, both fashion
and technical are merging," Mariette said. "You cannot have
technical clothing for ladies which is not feminine and
beautiful."

THREE SOURCES POSE CHALLENGE

The challenge to Lulu is coming from at least three fronts:
trendy upstarts such as Lolë; cheaper athletic brands such as
Under Armour Inc and fashion retailers that are expanding
into workout gear.

Lululemon has vowed to use its design patent portfolio to
protect its core products. In November, it settled a suit
against PVH Corp's Calvin Klein and G-III Apparel Group
Ltd.

Mariette, who aims to expand Lolë to 50 stores from 11 in
the next five years, sees room for plenty of brands in the
emerging category. Mass-market retailers such as Gap reach a
different audience than brands with more "authenticity" such as
Lolë, Lululemon and closely held, U.S.-based, Prana, he says.

Mariette launched Lolë's retail concept in 2010 and brought
in a high-fashion designer, Andy Thê-Anh, better known for
evening wear. Sales have risen 60 percent over the last two
years and Mariette says Lolë is "very profitable."

At Lolë's Toronto boutique, tucked in an upscale mall,
mannequins in yoga pants are lined up alongside racks of
colorful tank tops and an advertisement for free Zumba classes -
a kind of Latin dance aerobics.

Lolë's success was one reason Kilmer Capital Partners, a
Toronto private equity firm, decided to take a controlling stake
in Coalision in 2008, according to Kilmer's president, Anthony
Sigel. He said the firm saw a big market in clothing for women
interested in fitness and getting outdoors.

Lolë's "growth rate was pretty compelling," Sigel said. "It
was a combination of our sensing that the sector had a lot of
growth (and) it wasn't just an idea. They had already proven
it."

EXPANDING UNIVERSE

A second newcomer is Australia's Lorna Jane, with more than
120 stores in Australia and New Zealand, and plans to open at
least 11 in southern California this year, and another 20 in
2013, according to a release from September.

Prana, which Liz Claiborne Inc sold back to its founders and
a private equity firm in 2008, has six stores in the United
States and distributes its yoga and climbing wear to specialty
retailers around the world.

But those privately held brands are small fry against the
likes of Gap's Athleta banner, which wants 50 stores by the end
of next year. The chain offers free classes, like Lululemon,
Lolë and Prana, while handily undercutting them on price.

At the same time, well-known athletic brands such as Nike
Inc and Under Armour are offering more yoga-inspired
gear for women and some traditional apparel brands across the
price spectrum are rolling out gym wear.

Anne Rivers, a branding expert with BAV Consulting who
tracks consumer attitudes about Lululemon and other brands, says
small players such as Lolë pose little threat. But she doesn't
believe that Lululemon is invulnerable.

"I think the bigger risk would be if somebody like Under
Armour was trying to take them on, which I think they are now,"
said Rivers.

Lulu seems to be moving further into its competitors' turf,
making more clothing for outside the yoga studio, said Brian
Sozzi, chief equities analyst at NBG Productions.

In the fall, Lulu rolled out a line of office-friendly
cycling clothes and in recent weeks it has featured goose down
vests and jackets and Merino wool sweaters. It is also offering
more menswear.

While the broader focus can help Lulu grow, it opens it up
to even more competition.

"Over time, what could happen is that the customer says,
'You know what? I can get comparable products from Nike or Under
Armour at a decent price,'" Sozzi says.